The Economic System and Income Distribution in Yugoslavia

Henryk Flakierski

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315490991
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This is the second volume in the author's ongoing inquiry into the extent of income inequality in the East European socialist countries and the effect of market-oriented reforms on patterns of income distribution. Although there has been remarkably little empirical research on this question (in part because of the problem of obtaining reliable data), both proponents and opponents of reforms voice strong views on this subject, with both sides, however, tending to grant the assumption that decentralization and the increased use of market mechanisms will increase inequality. In this study as in the preceding volume, "Economic Reform and Income Distribution: A Case Study of Hungary and Poland", Henryk Flakierski undertakes a study of the data in order to shed light on this question - this time with reference to the most decentralized of the East European economics and the one in which marketization of the economy has been most advanced.

Notes

I. A Survey of Systemic Changes

1. For more details see E. Berković, "Differentiation of Personal Income," Yugoslavia Survey, 1971.

2. Data comparing immediate postwar differentials with the prewar old regime are scanty. Calculations done by T. Mulina and K. Mihailović in Pitanje plata u FNRJ [Wages in Yugoslavia] (Institute of Economics, Belgrade, Serbia) indicate much bigger differences in earnings between manual and nonmanual employees before than after the war. The figures are as follows:

Manual workers = 100		Office employees in industry = 100
Years	Office employees in industry	Civil servants	Manual workers	Civil servants
1939	175	193	57	111
1953	122	104	82	85

3. Under this system and during the first year, some enterprises ascribed fictitious rates to different skills in order to increase the "accountable wages." In 1955 all enterprises were obliged to discuss their wage scale schedules with trade unions and local governments; this was a sort of collective agreement.

4. Although wages out of profit vary, they have always been a rather small fraction of the combined total wage. According to H. M. Wachtel's calculations, the ratio of variable to fixed wages in industry has fluctuated between 8% and 15% for all employees. Even for the highest white-collar employees, for whom the ratio is substantially higher than the average, it has never exceeded 21% (for the years 1956, 1959, and 1961). See H. M. Wachtel, Management and Workers' Wages in Yugoslavia: The Theory and Practice of Participatory Socialism (Ithaca and London: Cornell University Press, 1975), p. 108, Table 5.1.

The ratio of variable wages to fixed wages in Yugoslavia does not differ very much from what is typical in other socialist countries, where premiums and bonuses likewise represent a rather small fraction of total earnings (and hence are not adequate stimuli for better work and innovations). See J. Adam, ed., Employment Policies in the Soviet Union and Eastern Europe (London: Macmillan, and New York: St. Martin's, 1982).

5. In 1952 the commune was established as the primary political unit. The 1953 Constitution gave communes the power to legislate in all matters except where the federation or the republics had exclusive authority. They have wide discretion to levy local taxes on enterprises, and often they tax efficient enterprises heavily, in order to finance the inefficient ones. The commune has substantial influence over the distribution of retained earnings. Enterprises are obliged to present their annual plans to the commune for approval and policy recommendations, and seldom are those recommendations not accepted. In the case of investment projects financed with borrowed money, the commune has a substantial say because it acts as a guarantor to the bank. As far as the everyday activities of the enterprise are concerned, the communes exert influence through their power to hire and fire enterprise directors, which obviously motivates a director to be sensitive to the wishes of the commune.

The economic chambers established in 1954 are another, though less powerful, source of influence over the enterprises. Each economic sector is represented by a chamber, in which membership was made compulsory after 1958. The chamber's influence is similar to that of the commune, but is functional rather than territorial. Enterprises submit their production and investment plans to their chamber for scrutiny and recommendations, in order to avoid over- or underproduction or multiplication of capacities. But, as in the case of the commune, the recommendations of the chamber are not legally binding.

6. Although in many instances quite a few criteria were used to classify employees into different skill groups, in the centralism period the level of skill and work experience were most often the only criteria used for manual workers, whereas for nonmanual workers the level of education and work experience were used as criteria by most enterprises. The function of planning the enterprise's skill differentials for the next year was entrusted to the workers' council, whose proposals were then discussed and adopted by a general meeting of all the employees of the enterprise. Until 1961 the enterprise rules for wage distribution required the approval of the commune to become binding. Toward the end of the 1950s a more sophisticated job rating system was introduced. Each job was evaluated in terms of required skill, experience, and education, responsibility, physical effort, mental effort, working conditions, etc. For each of these criteria, points are awarded. However, as Wachtel reports from interviews with enterprise officials (see Management and Workers' Wages in Yugoslavia), the most important criteria in the assessment of points are the more measurable objective criteria of experience, skill, and education required. The preliminary structure based on this job evaluation may be adjusted to labor market conditions, for example by comparing it with the wage structures in other enterprises in the industry or in other enterprises in the same location.

7. The standard or calculated wage fund represents the wage fund that is based on wage rates for different skills set by the federal government. If the actual full wage fund of the enterprise exceeded the standard wage fund by more than 20%, a steep tax was levied on the wage fund. This progressive tax could be as high as 70% of the nonpeimitted excess wage fund.

8. A tax on capital stock was first introduced in 1953. The tax rates were highly differentiated (between 0 and 6%) from industry to industry. The purpose of this instrument was to force enterprises to use capital prudently and at the same time to be a source for financing investment by the state. It should be stressed here that in the early 1950s enterprises were allowed to keep only a small percent of their accumulation fund, and even amortization funds were concentrated in the hands of the Federal Investment Fund (FIF). But gradually enterprise investment financed from the enterprises' own resources increased; by the end of the 1950s nearly 30% of all such investment was financed by the enterprises' own resources. In 1963 the Federal Investment Fund was abolished, its funds turned over to various banks (the only investment fund left to the federation was the fund for accelerated development of the underdeveloped regions). Thereafter, the old investment regime changed considerably. Enterprises invested from their own resources and from bank loans based on commercial principles. Their fiscal obligations were substantially reduced, to facilitate accumulation. The capital tax was gradually reduced and then abolished altogether in the early 1970s, as were progressive and proportional taxes on enterprise net income. For more details see Ante Čičin-Šain and Neven Mates," The Development and Role of the Major Economic Policy Instruments in Yugoslavia 1952-1972," in Socialism and Industrialization: A Comparison of Economic Systems in Poland, Yugoslavia, China and Cuba (Frankfurt and New York: Campus Verlag, 1985).

9. Branko Horvat, The Yugoslav Economic System (White Plains: IASP [M. E. Sharpe], 1976), p. 164.

10. Before the 1965 reform, the federal government was responsible for financing not only many capital-intensive infrastructure projects, but also projects in the manufacturing and other productive sectors. The major fund to finance investment by the federation was the Federal Investment Fund After 1964 the role of the federation in investment allocation was limited to the fund for the underdeveloped regions. The federal government would annually distribute funds amounting to nearly 2% of the national output of the developed regions to the underdeveloped regions for investment purposes. The main source of financing this fund was a tax on fixed assets (a 5% capital charge) and contributions from the more developed regions. There was a dramatic change in financing investment in fixed capital after 1964. Whereas in 1962 the federal state's contribution to the overall investment funds was nearly 60% and the rest was done by the enterprise's own funds (38%) and banks (3%), in 1966 the central government's share was only 16%, the internal funds of enterprises covered 46%, and banks' funds accounted for 39%. Thus the banks replaced the federal government as a serious source of accumulation. In the late 1960s and early 1970s they further increased their share, at the expense of self-financed enterprise accumulation. During this period over half of all investment in fixed capital was financed by the banks. See Horvat, The Yugoslav Economic System, p. 222, Table 28.

11. Of course, we should caution readers that formal control over income distribution by the enterprise is not the same as real control. In a Communist one-party system, the state has many instruments to control how income will be allocated, abrogating to some degree the formal prerogatives granted by the same state to the enterprises. Although after the reforms of 1965, state intervention in distribution matters was substantially reduced, it has never ceased entirely in any period in socialist Yugoslavia.

12. For more details regarding the reforms of 1965 see R. Bićanić, Economic Policy in Socialist Yugoslavia (Cambridge: Cambridge University Press, 1973).

13. In 1957 Bićanić characterized the new Yugoslav system, its aims and means, and its differences from the Soviet-type economy in the following ways:

(a) social ownership of the means of production as opposed to state ownership;

(b) decentralized social planning as opposed to cential planning;

(c) reliance on the market mechanism as a basic mechanism of allocation of goods and services, as opposed to administrative allocation (markets for capital and labor were not envisaged);

(d) increased use of financial instruments;

(e) free distribution of available income by workers' councils in contradistinction to administrative fixed wages;

(f) decentralized and functional budgeting at all administrative levels, as opposed to an all-embracing state budget;

(g) restoration of consumer sovereignty;

(h) acceptance of private farming and freely organized cooperatives, and a rejection of compulsory collectivization.

See R. Bicanic, "Economic Growth under Centralized and Decentralized Planning: Yugoslavia, A Case Study," in Economic Development and Cultural Change, vol. 5, 1957, pp. 63-74.

14. Jose Mencinger, "The Yugoslav Economic System and Performance of the Economy in the Seventies and Early Eighties," in Socialism and Industrialization (Frankfurt/New York: Campus Verlag, 1985), p. 198.

15. Ibid.

16. For example, in Belgrade the average income per worker and personal income per worker were established on an ex post basis. The average statistical figures for the previous year were used and a certain calculated rate of growth was added on the basis of predictions. Slovenia was the only republic where this average was established ex ante.

17. For more details see S. Babić, "The Problem of Choosing Indicators of Efficiency in the Yugoslav Economic System 1976-1980Economic Analysis and Workers' Management, vol. 16, 1982, pp. 347-68. Econometric calculations for 1980 made by Babić indicate that the correlation of personal incomes in different republics is very weak, the parameter (R) ranging from 0.31 to 0.40 for 1980.

18. In Yugoslavia taxes are levied on gross personal income, but not as an aggregate percentage of gross personal income. Every item to be financed (such as education, health, sports, etc.) is covered by a separate tax as a percentage of gross personal income. For example, out of a total tax rate of 30%, 10% is to finance health, 10% education, etc.

19. The more prosperous republics usually oppose any federal interference in their economic affairs as incompatible with the democratic principle of decentralization, but in their own backyards they do not practice what they preach.

20. T...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Preface
• I. A Survey of Systemic Changes
• II. Statistical Analysis
• III. Skill Differentials and Self-Management
• IV. Interbranch Pay Differentials and Self-Management
• V. Conclusions: Is Self-Management the Villain?
• Appendix
• Notes